Unit 9 Legal Aspects of Business PYQ’s 26th Nov 2021 Shift 1

The correct answer is – Impossibility known to the parties at the time of making of the contract

Key Points

Doctrine of Supervening Impossibility:

• The Indian Contract Act, 1872 states in Section 56, paragraph 2, that if the doctrine of supervening impossibility applies and a contract becomes impossible or illegal to perform after it is formed, it will be void.
• It’s interesting to note that, generally speaking, the inability to perform a contract is not a reason for failing to do so.
• It only applies where this impossibility results from causes outside the parties’ control. They can only be released from any additional contract obligations in that scenario.
• Here, Impossibilities are known to the parties at the time of making of the contract that’s why it will be applied.

Important Points

Doctrine of Supervening Impossibility will be applied in following cases:

• Destruction of Subject Matter of Contract: A contract is dismissed if, after it is formed, its subject matter is destroyed without any of the parties’ fault.
• Non-existence or non-occurrence of a particular state of things: There are occasions when a contract is made based on the occurrence or existence of a specific condition. However, if the circumstances that formed the contract’s very foundation change or cease to exist, the agreement is null and void
• Death or Incapacity of Services: If the performance of a contract depends on a party’s qualifications or personal skills and that party’s demise, illness, or incapacity renders the contract void, the contract may also be discharged by supervening impossibility. This is true because the contract’s implied terms include a man’s life.
• Change of law or stepping in of a new law: After the creation of a contract, it is possible that the law changes or that an amendment is made to an ordinance, a special act, or a set of government regulations. The contract is discharged since the change makes it impossible to carry out the terms of the agreement.
• Outbreak of war: When two parties from separate nations sign in to a contract with one another and a war is subsequently declared between the countries, the contract typically becomes void since it cannot be carried out.

Additional Information

The doctrine of Supervening impossibility will not apply in following cases:

• Difficulty in performance: The mere fact that it is now more difficult to carry out a contract due to unforeseen circumstances or delays does not deem it to be fulfilled.
• Commercial Impossibility: A contract is not discharged for these reasons if an anticipation of larger profits is not met, the required raw material becomes available at a very expensive price due to the start of a war, or if a sudden depreciation of currency happens.
• Impossibility due to failure of third party: A contract is also not discharged if it was unable to be carried out because a third party the promisor had depended on defaulted.
• Strikes, lock-outs, and civil disturbances: Events like strikes, lockouts, or public unrest do not discharge a contract unless the parties explicitly consented to such terms at the time the contract was signed.
• Failure of one of the objects: In addition to the aforementioned situations, if a contract is made for a number of purposes, the simple failure of one of those purposes does not cancel the agreement.

“Special additional duty of customs” is the State Taxes that have not been replaced by GST

Key Points

Goods and service Tax (GST):

• GST stands for Goods and Services Tax.
• It is an Indirect tax which introduced to replacing a host of other Indirect taxes such as value added tax, service tax, purchase tax, excise duty, and so on. GST levied on the supply of certain goods and services in India.
• It is one tax that is applicable all over India.

Important Points

Central Taxes Replaced by GST-

• Additional duties of excise
• Central Excise Duty
• Excise duty levied under Medicinal & Toiletries Preparation Act
• Additional duties of Excise levied under Textiles & Textile Products
• Additional duties of Customs(CVD & SAD)
• Service Tax
• Surcharges & Cesses
• Central Sales tax

At the state level below-mentioned taxes have been replaced by GST-

• State VAT/Sales Tax
• Central Sales Tax
• Purchase Tax
• Entertainment Tax(Other than those levied by local bodies)
• Luxury Tax
• Entry Tax (All Forms)
• Taxes on lottery, betting & gambling
• Surcharges & Cesses
• Taxes on advertisements

The correct answer is – Hiring of bank locker is a contract of Bailment

Key Points

Contract of Bailment –

• The Indian Contract Act, 1872’s section 148 defines bailment as the conveyance of commodities from one person to another for a certain purpose.
• When that goal is achieved, the recipient of the items returns them or otherwise disposes of them in accordance with the instructions of the sender.
• The bailor is the person who delivers the goods. The recipient of such items is referred to as the bailee.
• A contract of bailment only results in a change of possession, not ownership.
• Hiring of bank locker is a contract of Bailment – A bailment is made when you place money, jewels, etc. in a bank locker

Mistake Points

As per the official answer key by UGC, the answer is “Hiring of bank locker is a contract of Bailment”

However, according to the judgement of Atul Mehra v. Bank of Maharastra case,

• The court, in this case, held that exclusive possession of the goods is sine qua non for bailment.
• Therefore, mere hiring of a locker would not be sufficient to constitute a contract of bailment as provided under Section 148 of the Indian Contract Act, 1872
• And it was also added that the question of reasonable care and quantum of damages would arise only after it has been shown that actual exclusive possession of the property was given by the bailee to the bailor, i.e. the bank.

The correct answer is – Input Tax credit of SGST/UTGST can be utilised for payment of CGST

Key Points

• [Section 2(63) of the CGST Act, 2017 Input Tax Credit – Input tax credit Simply, the GST amount paid on an inside supply can be applied toward the tax due on an outgoing supply.
• Section 2(62) of the CGST Act of 2017’s input tax – Any goods or services that have CGST, SGST, UTGST, and IGST paid on them .
• Section 2(59) of the CGST Act of 2017 input -any products other than capital goods that a supplier uses or intends to use in the course of doing business.
• Any service utilised or intended to be used by a provider in the course of conducting business is considered an input service under Section 2(60) of the CGST Act, 2017 .
• Capital goods [CGST Act of 2017 Section 2(19)] – Products utilised or intended to be used in the course or furtherance of business and whose worth is capitalised in the books of accounts of the person claiming the input tax credit.

Important Points

Utilize IGST credit in the following order:-

First, use it to pay for IGST Utilize a second time to pay CGST, SGST, or UTGST The last to be used for SGST or UTGST or CGST payment Note: Before ITC of CGST, SGST, or UTGST may be used to satisfy any tax debt, IGST credit must be fully utilised.

Beginning on or after January 4, 2019, [Sections 49, 49A, and 49B of the CGST Act, 2017 and Rule 88A of the CGST Rules, 2017] CGST credit should be used in the sequence of: –

Utilize IGST first, if it is available, to pay CGST, SGST, or UTGST. Use CGST to pay for CGST. Pay any remaining CGST liability in cash or by other acceptable means. Utilize any remaining CGST input credit toward paying IGST; not permitted against SGST or UTGST.

1-4-2019 Onwards [Sections 49, 49A and 49B of CGST Act, 2017 and rule 88A of CGST Rules, 2017], SGST or UTGST must be used in the following order:

First, use IGST, if available, to pay for SGST, UTGST, or CGST liability. •Second, use SGST or UTGST to pay for SGST, UTGST, or both. •Any remaining SGST or UTGST due must be paid in cash. Alternately, you can: •Utilize any remaining SGST or UTGST input credit toward paying the IGST •Not permitted against CGST.

The correct answer is – C and E only

Key Points

Another method of mutually agreeable contract termination is rescinding the agreement. A contract can be rescinded to end the agreement. Which plainly implies that the original contract need not be fulfilled when the parties agree to cancel.

Important Points

Contract is said to be discharged by recession in following cases:

• Lack of Capacity: A person who may have lacked the necessary mental or physical capacity, or who is a minor or has other capacity concerns, to enter into a contract. Absence of capacity is cause for cancellation.
• Fraud: In an effort to get the other party to sign a contract, one party committed fraud and produced false statements.
• Duress: A party was forced against their will to engage into a contract (duress, coercion, undue influence).
• Mistake of Fact: A factual error occurs when one party did not understand the contract’s provisions and would not have signed them differently.
• Anticipatory Repudiation: On the grounds of anticipatory repudiation, a party may withdraw a contract if the other party is defaulting on its commitments. This indicates that the non-rescinding party no longer fulfils its own responsibilities and that the rescinding party is seen to have failed in its obligations.
• Lack of Consideration: The contract may be cancelled if the consideration is deemed legally insufficient or fails because it did not follow the standards for contract formation.
• Public Policy: Because it directly conflicts with the interests of the public, a contract that violates public policy may be dissolved.

The correct answer is – A and D only

Key Points

Competition Act, 2002:

• In order to increase their earnings or market share, vendors compete with one another to win the patronage of consumers.
• The Monopolies and Restrictive Trade Practices Act, 1969 was repealed by the Competition Act, 2002, which was passed by the Indian Parliament.
• It currently controls Indian competition law.
• The Act aims to provide the necessary legal framework and instruments to assure compliance with competition regulations, to stop anti-competitive behaviour, and to sanction such behaviour.

Important Points

Objectives of the Competition Act:

An Act, keeping in view of the economic development of the country, was laid

down to provide for an establishment of a commission with the following object:

• to prevent practices having adverse effect on competition,
• to promote and sustain competition in markets,
• to protect the interests of consumers,
• to ensure freedom of trade carried on by other participants in markets in India and -for matters connected therewith or incidental thereto.

The correct answer is – A – lV, B – lll, C – ll, D – l

Key Points

Goods – Section 2(7) of the Sale of Goods Act, 1930 defines “goods” to include all transportable property types, such as stocks, shares, crops, grass, severable objects, etc.

Important Points

Actionable claim- Any debt that is connected to a benefit derived from movable property that is not in possession and for which relief can be sought in civil court is referred to as a “actionable claim.” Further It means that if no action is made to realise the claim, it cannot be regarded to be an actionable claim for the reason that no action was taken to realise it.

Appropriation of goods– Appropriation of goods under the sale of goods act,1930 as follows –

• Deliver as per description – The property in the goods passes to the buyer when there is a contract for the sale of undetermined or future goods by description and goods matching that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the buyer’s consent or by the buyer with the seller’s consent. Before or after the appropriation is made, this assent may be given and may be expressed explicitly or inferred.
• Delivery to carrier – When the seller delivers the products to the buyer, a carrier, or another bailee (whether or not identified by the buyer) in accordance with the contract and does not reserve the right to dispose of the goods, he is understood to have unreservedly appropriated the goods to the contract.

Existing goods- According to section 6 of sales of goods act 1930,those goods as are existence at the time of the contract of sale or those goods owned or possessed by the seller at the time of contract of sale. There are three types of existing goods –

• Specific Goods
• Ascertained Goods
• Unascertained Goods

Future goods – According to Section 2(6) of Sales of goods Act 1930, those goods are to be manufactured or produced or acquired by seller after making of contract of Sale. For examples, A agrees to B to sell all wheats to be produced in his field this years.

The correct answer is – Both Statement l and Statement II are correct

Important Points

Statement l: Patents are defined as monopoly rights which one granted by the government, for full disclosure of invention for a limited period of time, that is for 20 years

Explanation:

• A patent is an exclusive right awarded for an invention is a product or a technique that, in general, gives a new way of doing something or provides a new technical solution to a problem.
• The protection is granted for a limited period, generally 20 years from the filing date of the application.
• Hence, Statement I is true.

Statement II: The purpose of granting patents is to encourage inventions by promoting their protection and utilization so as to contribute to the development of Industries.

Explanation:

• The purpose of granting patents itself is to not only encourage innovation but also ensure that the inventions are worked in India and are made available to the public in sufficient quantity at reasonable prices.
• Hence, Statement II is true.

The correct answer is – B and D only

Key Points

• In commercial law, the ability to enter into a contract is known as contractual capacity. The capacity to contract is precisely defined in Section 11 of the Indian Contract Act of 1872.
• It determines if a specific person is qualified or eligible to get into the contract based on three main criteria.
• First, the people doing the engagement must be mentally sound, then they must be over the age of 18, and last, they must adhere to the legislation of contracts.

Important Points

A person lacks contractual capacity, if

• Lacking mental ability by being a Minor, there are some exceptions to this, such as contracts for entering into education, or contracts for necessities that are deemed as having fair terms.
• Lacking Mental Capacity: This means that if someone is deemed to be mentally incompetent, certain mental disorders or psychological conditions frequently allow them to nullify contracts (or allow their guardian to do so).
• Being Intoxicated: The ability to void a contract due to intoxication is also possible, but this is the exception rather than the rule.
  The court will consider the extent of the drunkenness and the counterparty’s awareness of it when determining whether it can undermine contractual competence.
• Lacking Signatory Authority : It is possible that a large contract would be challenging to enforce if someone without signatory authority signs it on their company’s behalf and lacks contractual ability. It would be wise to mail the contract again in this situation and make sure the proper signatory is requested.
• Convict Serving Sentence: A person who is guilty and is serving imprisonment does not have the capacity to enter into a contract. He also cannot sue on the contracts that were before his conviction. After the expiry of his sentence, he is at liberty to suit.

The correct sequence is – C, A, D, E, B

Key Points

Statutory meeting:

• The first meeting of shareholders of a public company is known as the Statutory Meeting.
• It must be held no earlier than one month after the firm is granted permission to start doing business and no later than six months after that.
• It is only ever held once throughout a company’s existence.
• It is not necessary for a private corporation or a company limited by guarantee without a share capital to hold such a meeting.
• The goal of the statutory meeting and its statutory report is to inform the firm’s shareholders of all important information on the new company, including how many shares have been purchased, how much money has been received, etc.

Important Points

Procedure of the Statutory Meeting:

• The board of directors must forward a statutory report to every member of the company. This report must be sent at least 21 days before the meeting.
• The statutory report contains information relating to shares allotted, Cash received, abstract of the receipts of the company and of the payments made, Directors, auditors and other managerial personnel, Contracts:etc.
• According to Section 165(4), the statutory report must be certified as correct by not less than two directors; one of whom shall be the managing director, if any. The auditors of the company would then certify it as correct regarding the shares allotted, cash received in respect of such shares and the receipts and payments of the company.
• As per provisions of Section 165(5), a certified copy of the statutory report shall be filed with the registrar for registration immediately after it has been sent to the members of the company.
• The Board shall cause a list showing the names, addresses and occupations of the members of the company, and the number of shares held by them respectively, to be produced at the commencement of the statutory meeting, and to remain open and accessible to any member of the company during the continuance of the meeting.